FXStreet (Guatemala) – Derek Halpenny, European Head of GMR at the Bank of Tokyo-Mitsubishi UFJ, Ltd explained that China now appears ready to lose reserves offshore as well as on.
Key Quotes:
“The offshore intervention and complementary efforts to fit the on/offshore DF curves closer together seem an effort to say, see it’s really freely usable. But let’s review basics.”
“Unless you believe the direction and pace of capital flows from China changed, all the interventions will do is to make it cheaper to buy USD. Unless China can stabilize expectations for its economy, the direction of capital flows won’t change. Having driven hedging offshore with its 20% RRR, China seemed uncomfortable what the basis risk suggested re capital flows. Solution? Intervene. Disabling instruments will not make it easier to avoid a plane crash in the future.”
(Market News Provided by FXstreet)